Monday, April 28, 2008

The Debts of the Lenders: Brazilian Oil Challenges

Formidable engineering challenges block Brazil from extracting oil. 500 degree F, pressures of 18,000 pounds per square inch, and thick salt deposits are just some of the problems that planners have to overcome.

Although more recent estimates place Brazilian oil deposits at 33 billion barrels, it will take at least until 2012 for the first operations to go on line.

Sunday, April 27, 2008

The Debts of the Lenders: Dollar Slides as Asians Desert Treasuries

I've said it before and I'll say it again. Foreigners are the lifeblood of the US economy.
America can't keep taking foreign money for granted.

Japan owns more Treasuries than any other nation. After raising their holdings by $9.2 billion to $620.6 billion between March and July 2007, Japanese investors trimmed that stake by $34 billion through February, the Treasury said April 15.

Asian investors outside Japan are also pulling back. Money managers in China, the second-biggest overseas holder of Treasuries, with $486.9 billion, and South Korea say they favor debt in Europe, equities or commodities.

The Debts of the Lenders: Growth Prospects . . . . in Japan?

Companies have soaked up excess production capacity. An index that measures manufacturing capacity against demand has been at or below zero for nine quarters, indicating there are few idle factories, according to the central bank's Tankan survey of business sentiment. The index stood at 31 points in March 2002 as the economy emerged from its last recession.

``People tend to blow hot or cold on Japan,'' Jessop said. ``At the moment, the pendulum has swung too far. If you're looking at developed economies, Japan is going to be one that surprises on the upside this year.''

Friday, April 25, 2008

The Debts of the World: Exchange Traded Currency Funds

Exchange Traded Currency Funds - how long will their popularity last? Interest in ETCFs peaks when the dollar is low but declines on a strengthening dollar. While the dollar seems undervalued, look at the fundamentals. The long term fiscal and monetary policy of US policymakers points to a bearish picture.

The Debts of the Spenders: FBI Hysterics Accuse "Terrorists" of Roiling the Markets

Great, next time you're at the pump wondering why gas prices are so high, you can blame the terrorists for "manipulating financial exchanges." You can thank our good protectors over at the FBI, who are apparently ignorant of the basic laws of Supply and Demand. Expect more hysterics in the future as the American government seeks to blame everyone...but itself for blatant dollar inflation premiums in commodity prices.

"International organized criminals have penetrated the energy market and other strategic sectors of the U.S. and world economy. As U.S. energy needs continue to grow, so too could the power of those who control energy resources.

International organized criminals are manipulating securities exchanges and engaging in sophisticated fraud schemes that rob U.S. investors, consumers, and government agencies of billions of dollars.

International organized criminals exploit the U.S. and international financial system to move illegal profits and funds, including sending billions of dollars in illicit funds through the U.S. financial system annually. To continue this practice, they seek to corrupt financial service providers globally."

Thursday, April 24, 2008

The Debts of the Spenders: The Costs of Glass-Steagall

AFSCME, one of America's largest unions, publicly blamed the consolidation of Citi's Commercial and Investment arms for the sub-prime debacle. The merger of the two sides was made possible by the repeal of Glass-Steagall, an important Depression era regulatory measure meant to prevent speculative froth from overcoming the markets.

Coincedentally, former Treasury Sec. Robert Rubin, who championed the repeal, became Citigroup's Chairman immediately after the repeal took effect.

The Debts of the Spenders: The Trouble with Stockpiling Oil

Pelosi demonstrates her complete lack of geo-political knowledge in a shameless display of political posturing by asking Bush to stop stockpiling oil.

The Debts of the Spenders: Students Lose Access to Loans

As private lenders feel the effect of the credit crunch, schools are turning to the Education Department's Direct Loan program.

Dozens of lenders, led by College Loan Corp. and CIT Group Inc., stopped making federally guaranteed loans because the U.S. cut subsidies and investors hurt by the subprime-mortgage crisis shunned bonds backed by student loans. At least 178 schools have applied since Feb. 28 to let students borrow from the direct program, compared with 80 that applied for the program in all of last year.

The Debts of the Lenders: Crude Oil in ....Brazil?

Brazilians have long been known to produce ethanol from sugar. But now, recent discoveries of offshore crude deposits may hold up to 8 BILLION barrels of oil. Among discoveries in the past 30 years, only the 15-billion-barrel Kashagan field in Kazakhstan is larger.

And these are only the initial findings. Brazil only seriously began drilling research in 2007.

Wednesday, April 23, 2008

The Debts of the World: Gold Fillings

And you thought only pirates had gold teeth... A look at how record gold prices are spurring dentists to reconsider gold fillings.

The Debts of the Lenders: I speak good Engrish

Despite being the world's second largest economy, Japan is not known as a center for international - or even regional trade and finance. This author posits an interesting theory: The English language deficit.

English, for better or worse, has become the lingua franca of finance, business, science and the Internet. The longer any nation resists the need to improve its English skills, the more it limits its potential.

Tuesday, April 22, 2008

The Debts of the Spenders: The Rise of the Agro-Industrial Complex

Farmers...or Commodities Traders?

Monday, April 21, 2008

The Debts of the Spenders: BOE Offers $200 Billion Bailout

For a limited time only, the BOE is offering to bailout the sub-prime laden debt books of British banks in exchange for good, old fashioned government bonds. One wonders what kind of effect this will have on long term currency rates.

Saturday, April 19, 2008

The Debts of the Spenders: Foreclosure Express Tours in Vegas

Ah, Las Vegas, Sin City, the legitimate child of organized crime. While traditionally known for gambling and material excess, the city is also home to the highest foreclosure rates in the US. Bus tours typically take visitors to casinos.

Now, daring entrepeneurs have started a "foreclosure express" that promises desperate homeowners a chance to sell while also appealing to busloads of deep pocket tourists. Instead of splurging your latest winnings on flashy cars, jewelry, or lavish parties, why not pick up a home or two?

The Debts of the Spenders: British Banks Close to a Bailout Deal

Newton, an Englishman, invented the theory of gravity. What goes up must come down. The same can be said of soaring real estate prices in the UK. Policymakers estimate that 100 billion pounds are necessary to sustain economic viability. This, coming after three consecutive rate cuts AND a bailout of Northern Rock.

Friday, April 18, 2008

The Debts of the Spenders: Iceland interest rates at 15.5% attract speculative attacks

But while Iceland declared, in effect, an end to the speculative attack, Standard & Poor's, the credit rating agency, cut its sovereign rating for the country.

It reduced its long-term foreign currency rating to A from A+ and put it on negative outlook, citing concerns over banks' reliance on external funding.

"The banks' higher funding costs, combined with the recent 27 per cent depreciation of the Icelandic krona, increase the chances that the economy will contract more and for a longer period than we had foreseen," S&P said in a statement.

The Debts of the Spenders: Equities Rally = Sucker's Rally

Equities rallies in a bear market are inevitably a poor bet. In volatile times, technical analysis models tend to fail and fundamentals reign supreme. The fundamentals of the world economy are rising inflation and volatile commodity prices as central banks prove unwilling to enact a coordinated, coherent monetary policy. Instead, we have disparate actors moving in opposing directions. For ex: The Fed is hell bent on debasing the dollar. Bernanke is supported by (unsurprisingly) the Asians and Arabs. Meanwhile the ECB stubbornly fights 2x digit inflation by refusing to cut rates and has even threatened to raise them.

The Debts of the Lenders: Like White on Rice

First corn, now rice? The cost of staple grains keeps on rising.

The Debts of the Lenders: Foreigners Overpaying for Natural Gas?

Thursday, April 17, 2008

The Debts of a Nation: 21st Century Trading in Futures and Options

It's all electronic now. The days of open outcry are numbered.,0,6487314.story?page=2

The Debts of the Lenders: Dubai Commodity Exchange

Base Metals

Until the recent past, the Middle East has had only a minor role to play in the production, trading, and consumption of base metals. However, lead by the UAE, the region is emerging as a global centre for aluminium production, with more than 2/3s of all global aluminium production investment taking place here. The burgeoning developments in oil refining and processing, steel production and processing, and construction has fueled a remarkable growth in base metal consumption.

Processing activities, to meet internal demand or for re-export, has also mushroomed. As with steel, DMCC has been progressively tailoring its business proposition to the local, regional, and international base metals community, and is fast developing a highly attractive commercial proposal for businesses to enter and grow within this sector.

The Debts of the Lenders: Shards of a Golden Crown

(Gold) All that glitters. ...

The low-hanging fruit has been picked already, so now it takes more time, innovation and money to get metals out of the ground. Also, new financial markets are opening all the time - most notably OUTSIDE of the West. Dubai, Shanghai, Mumbai, etc. are all vibrant exchanges.

(Government Currencies - notably the Greenback) All that's tarnished . .. .

Generally, gold's rise is due to the dollar's fall.

In the short term, the US faces the sub-prime crisis, bloated money supply, high oil prices, Iraqi war, consumers unwilling to spend, and rising unemployment. AND that's just in the short term. The US also faces a demographic explosion of older folks that is poised to suck trillions into an inefficient and bloated health-care system.

The Debts of the Spenders: Auction Rate Investigations

Regulators are late to the party . . . as usual. This is what happens when you have a bunch of unionized civil servants working against quantum hedgies.

The Debts of the Spenders: Level 1, 2, and 3 Debt Assets - What do they mean?

Corporate assets are classified in a progressively opaque pricing tier.

Level 1 assets are those for which a ready market exists, Level 2 assets are those for which a market exists for comparable securities and Level 3 assets are those for which no market exists, which are to be valued by use of mathematical models.

The Debts of the Spenders: Countrywide Courtroom Chaos

Countrywide preparing for major litigation

The Debts of the Spenders: Fed Had Notice of Sub-Prime as Early as 2005

It's amazing that the Fed acknowledged the risk of highly leveraged speculation Iin the derivatives and credit markets as early as 3 years ago. However, they did NOTHING to stop the mortgage mess. Maybe if they had cut interest rates back then, the problem would've stopped.

The Debts of the Lenders: Crude Awakening in Russia

Russia officially announces peak oil production.

The Debts of the World: Peak Credit and Peak Oil

peak oil has already happened (2006-07). Peak credit is next. Without cheap oil there will be no cheap credit.

Without that, the population will decline through war and famine. So in the end Malthus was right. Oil will start a catastrophic decline around 2010-11, called the "supply cliff". This happens to individual fields, oil producing regions and nations. Earth as a whole will be no different. Globalisation and all its attendant "isms" will end.

Cheap oil allows machine agriculture, plastics, fertilizers and our socioeconomic ideologies. Declining expensive oil terminates it all. Thats simple math.

The Debts of the Spenders: The Verdict on Greenspan

I've been looking at the empirical evidence. I invite you to look at table D2 and D3 of the Federal Reserve's Z1 "flow of funds".

The Greenspan Fed cut rates aggressively in 2001, and total mortgage debt (TMD) growth accelerated to what should have been an 10.4%. With rates dropping to as low as 1.25% in 2002, TMD expanded 12.1%. With rates dropping to 1.0% in 2003, TMD increased another 11.9%. Despite TMD increasing by a stunning 38% in three years, Fed funds remained at 1% through the first half of 2004. TMD growth surged to 13.5% in 2004, followed by 13.4% in 2005, and 11.6% in 2006.

Conclusion - The Greenspan Fed sat idly as mortgage credit doubled in just six years.

The Debts of the Lenders: Israeli Bailout

Over 2 days, the Israeli bank bought $600 million in Treasuries to support a falling dollar. Sovereigns don't usually make public announcements for fear of turning the markets volatile. Instead, they trade through a series of proxies - different banking and independent exchange platforms scattered throughout the world. They must have been seriously scared to forego the usual channels. /spages/971088.html

The Debts of the Spenders: Devaluing Treasuries

Bailout Bernanke decided to make Treasuries fully exchangeable for Level 3 debt assets. This is not the first time the Fed widened lending portals. Earlier in December 2007, the Fed opened the window with its Term Auction facility - but not to the extent of pledging illiquid, opaquely priced sub-prime debt.

The Debts of the Spenders: Biting the Hand that Feeds You

Surprising, surprise! The US is entering a recession and politicians burn the hand that feeds it.

The USA is scaring away foreign investment with its xenophobic CFIUS Council.,s01=1.html?nclick_check=1

Tuesday, April 8, 2008

The Debts of the Spenders: A Crisis of Fiat

The world is slowly waking up to the possibility of a gold standard. After Nixon unilaterally abolished Breton Woods in 1971, the dollar became the sole arbiter international reserve currencies. Unfortunately, more than 30 years of debt bubbles have bred an astonishing sense of entitlement among US policymakers.

They rely on the assumption that foreigners in developing nations will continue to lend funds despite lower returns. This assumption is a monetary fiction that severely distorts risk premiums and encourages exchange rate anamolies. The excess liquidity present in the U.S. only accelerates economic problems. The expansionary actions of the Federal Reserve have trickled down to affect other levels of the U.S. economy with the same reckless disregard for caution. With few sources of enduring domestic wealth, American homeowners have been encouraged to use their homes as credit backed vehicles. Credit cards and other forms of unsecured debt have proliferated.

The Debts of a Nation

Since the end of World War II, the United States has been the primary source of international investment and its currency the instrument of choice for developing nations to finance their economic growth.

Yet, developing nations have largely matured and their leaders are slowly realizing the consequences of free spending U.S. policymakers.

Introductory Note

In this blog, I write about the decline of our nation's fiscal health due to poor policy choices. I've structured news events along one of 4 chapters:

A. The Debts of a Nation - Introduction

B. The Debts of the Spenders - News on the US, OECD, and other Developed nations

C. The Debts of the Lenders - News on the Developing World

D. The Debts of the World - News on Systemic Risk, Futures and Equities markets

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